A concise history of the several tax regimes used by the United States government from its founding to the late 1990s. Usually, a war or other financial emergency was severe enough to provoke a rethinking of what should be taxed and how it was to be carried out. The last chapter addresses the discussions about the tax system following the elections of 1994. The topic has been popular for the last twenty-five years, although no substantial change in the system has taken place. [336.200973]The taxation issue has dominated much of American politics for the past half-century with opponents to the current system growing in volume and intensity and political power. A system as core to government functions as taxation, however, deserves a long look at the what can be gained from the experience that has accrued since 1789. This book provides just such a review. It covers the several tax regimes that the national government has relied upon for revenues across its history.
Two points stand out in this history. First, that the country has implemented major changes in its tax regime only in the face of severe, nation-threatening crises. These crises were the Civil War, World War I, the Depression, and World War II. (Some mention is also merited for the Tax Reform Act of 1986 for its efforts to broaden the tax base and its bipartisan development.) In each of these cases, the national government was faced with massive requirements for resources that could not be met by the regime still in place. The regime of the 1790s was established partly to create the ability of the government to tax. It sufficed with its protective tariffs and customs duties and, eventually, sales of government land to fund the government and even to pay off the debt by 1837. The system was inadequate for the financing needs of the Federal government in putting down the rebellion of 1861-65. That crisis even brought the first attempts to enact a mild income tax. The First World War expanded the use of the new personal income tax, but it also expanded the taxes on business. This included progressive taxes on business income (they are a flat rate today.) The Depression and the Second World War saw further refinement of income identification. In the 1930s, the challenge was to pay for public works and reconstruction while taxable incomes were reduced. At the same time, FDR was wary of running deficits and often moved to balance the budget. The demands of WWII were just enormous, but the Administration hoped to broaden the tax base to promote a patriotic effort. Outside of the adjustments made in 1986, the country has faced no existential crisis and this is likely why there has been no agreement on the direction forward to a new tax regime.
The second key point is that redistribution of income has always played a role in designing tax regimes. In its earliest years, the government would have considered property taxes as a means of addressing an "ability to pay" issue. The Constitution's restriction on direct taxes was, according to the author, created to keep the national government from competing with state governments who relied on this same tax base rather than on some principle about even-handed taxation. Part of Woodrow Wilson's plan for WWI financing was to redistribute wealth by encouraging the middle class to by government bonds which would be paid off in future years by taxation on the wealthy. In fact, all income tax schedules have had some element of progressivity, although Secretary Mellon did his best in the 1920s to reduce that. Although FDR was less interested in progressive tax rates during WWII, the Congress did keep them along with flat rate corporate taxes and the regressive payroll taxes. Post-War inflation probably did contribute to easy finance through "bracket creep." Finally, some note must be made of the Reagan Administration's tax reform of 1986 with its efforts to close loopholes and broaden the tax base. Since then, there have been no radical reforms of the tax regime. Further, the growing anti-government movement - as reflected in movements such as California's Proposition 13 - has contributed to the impediments to any such reform.
The shifting balance of the tax burden across income groups and between citizens and businesses is the result of these processes. And, it contains the motivation for future tax regime changes when the need presents itself.
(This book has been issued in two subsequent editions which may bring it up to date.)
This book is recommended for its brevity and the insight it provides on the topic.
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